As 2016 came to a close, Greystar Real Estate Partners filed for its first listed private equity real estate fund, or CKD (certificado de capital de desarrollo), in Mexico.
The firm is said to be targeting a fund listing on the Mexican Stock Exchange in the second or third quarter. If successful, the vehicle – in which Mexican pension funds and other qualified investors can buy non-tradeable shares – could be the first multifamily-focused CKD to close.
The offering would have an initial issuance of 800 million pesos ($37.4 million; €34.9 million) and a maximum issuance of 4 billion pesos, according to a prospectus. The firm, which has been operating south of the border since 2013, has identified a pipeline of 3.2 billion pesos of projects in Mexico City, Puebla and Guadalajara for the CKD.
The Greystar CKD is one of the latest steps in the emerging institutionalization of the Mexican multifamily market, which currently has only 3,200 of purpose-built apartment units, according to the fund’s prospectus. In another milestone, PGIM Real Estate sold a 3,200-unit apartment portfolio in Mexico City in June to Metro Buildings, a local, multifamily company, partly owned by Los Angeles-based private equity firm CIM Group. The transaction represented the first institutional, multifamily exit in the country.
The sector also has attracted some of the largest global real estate investors, including the Washington State Investment Board, which committed substantial equity to a Mexican multifamily startup company in 2015.
“We find the concept of investing selectively in Mexican multifamily intriguing,” said Steve Draper, senior investment officer of real estate at the $111.8 billion pension plan. “Mexico is the 10th most populous country in the world, and the middle class has grown to about 40 percent of the population. The rental sector is growing, but only about 15 percent of the population rents at this point. To date, the rental apartment market in Mexico has been highly fragmented, and is primarily served by individual investors offering units for rent.”
He added: “While other attractive real estate investment opportunities are available in Latin America, few of them are of the potential long-term scale of housing in Mexico.”
At the same time, Mexican multifamily has yet to be accepted by many institutional investors, including Mexico’s real estate investment trusts, the most active real estate buyers in the country. For example, the largest such REIT, Fibra Uno, currently does not own any rental housing in its 516-property, 79-million-square-foot portfolio.
Overseas investors have also been wary about the strategy, given that Mexican multifamily rents are likely to be in pesos, which could lead most, if not, all of the upside in an investment to disappear in currency devaluation. Yet that may be slowly changing. PERE understands that the PGIM sale attracted more than a dozen offers from bidders including two Fibras, multiple real estate funds, and Mexican and US family offices.
“I would say all of the uncertainty that I had 10 years ago when I started developing multifamily has slowly disappeared,” said Francisco Andragnes, chief executive at Metro Buildings and former chief investment officer of PGIM Real Estate’s Latin America division. “We have very favorable financing, so the financing risk is not there anymore. There’s less exit risk, because there are dozens of international and domestic investors very aggressively building portfolios.”
Metro Buildings currently aims to expand its multifamily portfolio in Latin America to between 5,000 and 10,000 units. In November, the firm began construction on projects in the Mexico City neighborhoods of Condesa and Polanco, with more to come elsewhere in the country and in the region.
The location of the projects – typically within five minutes by bicycle, car or subway from central business districts of cities – is critical, particularly in a city like Mexico City, where commute times have doubled in the past five years.
“Traffic is one of our best allies,” said Andragnes. “The more traffic you have, the more you have people renting apartments closer to their jobs.”
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